nep-int New Economics Papers
on International Trade
Issue of 2011‒04‒02
23 papers chosen by
Alessia A. Amighini
University Amedeo Avogadro

  1. Impact of FDI on Domestic Firms' Exports in China By Yu Sheng; Chunlai Chen; Christopher Findlay
  2. Multi-membership and the effectiveness of regional trade agreements in Western and Southern Africa. A comparative study of ECOWAS and SADC By Afesorgbor, S.K.; Bergeijk, P.A.G. van
  3. Wage Structure Effects of International Trade: Evidence from a Small Open Economy By Philip Du Caju; François Rycx; Ilan Tojerow
  4. Processing Trade, Exchange Rates, and the People’s Republic of China’s Bilateral Trade Balances By Xing, Yuqing
  5. Marginal Distance: Does Export Experience Reduce Firm Trade Costs? By Lawless, Martina
  6. Offshoring of Services and Corruption: Do Firms Escape Corrupt Countries? By Karpaty, Patrik; Gustavsson, Patrik
  7. Is China climbing up the quality ladder? Estimating cross country differences in product quality using Eurostat's COMEXT trade database By Gabor Pula; Daniel Santabárbara
  8. Structural change in an open economy By Kei-Mu Yi; Jing Zhang
  9. No trade, one-way or two-way trade? By Toshihiro Okubo; Pierre M. Picard; Jacques-François THISSE
  10. Environmental Outsourcing By Matthew A. Cole; Robert J.R. Elliott; Toshihiro Okubo
  11. Is the World Spinning Faster? Assessing the Dynamics of Export Specialization By João Amador
  12. Trade, Resources And Development: The Implications Of Asian Integration By Ian Coxhead
  13. African Regional Integration: Implications for Food Security By Van Dijk, Michiel
  14. Current Account Rebalancing and Real Exchange Rate Adjustment Between the U.S. and Emerging Asia By Pau Rabanal; Damiano Sandri; Isabelle Méjean
  15. Machines and machinists: Capital-skill complementarity from an international trade perspective By Márton Csillag; Miklós Koren
  16. Is Emission Trading Beneficial? By Ishikawa, Jota; Kiyono, Kazuharu; Yomogida, Morihiro
  17. The Palestinian economy and its trade pattern: Stylised facts and alternative modelling strategies By Botta, Alberto
  18. Imperfect Competition, State Trading and Japan's Imports of Rice By Donald MacLaren
  19. Any port in a storm? The impact of new port infrastructure on New Zealand exporter behaviour By Richard Fabling; Arthur Grimes; Lynda Sanderson
  20. Service export sophistication and economic growth By Mishra, Saurabh; Lundstrom, Susanna; Anand, Rahul
  21. How Can Commodity Exporters Make Fiscal and Monetary Policy Less Procyclical? By Frankel, Jeffrey A.
  22. Relocating the value chain: off-shoring and agglomeration in the global economy By Richard Baldwin; Anthony J. Venables
  23. Globalization, Brain Drain and Development By Docquier, Frédéric; Rapoport, Hillel

  1. By: Yu Sheng (Crawford School of Economics and Governance, Australian National University); Chunlai Chen (Crawford School of Economics and Governance, Australian National University); Christopher Findlay (School of Economics, University of Adelaide)
    Abstract: Using manufacturing industry firm-level census data from the period of 2000-2003 in China, this paper examines the impact of foreign direct investment on domestic firms' exports. After dealing with econometric problems of endogeneity and sample selection, we find that foreign direct investment in China has had a positive impact on domestic firms' export value through backward industrial linkages and a positive impact on domestic firms' export propensities in the same industry through demonstration effects. In particular, non-exporting FDI firms and FDI firms producing homogeneous products are more likely to generate the positive export spillovers to domestic firms through industrial linkages while exporting FDI firms and FDI firms producing heterogeneous products are more likely to generate positive export spillovers to domestic firms through demonstration effects in the same industry.
    Keywords: Foreign Direct Investment, export spillovers, industrial linkage
    JEL: F14 F23
    Date: 2011–03
  2. By: Afesorgbor, S.K.; Bergeijk, P.A.G. van
    Abstract: Using a gravity model for 35 countries and the years 1995-2006 we estimate the impact of regional trade agreements in Africa (in particular ECOWAS and SADC) and compare this to the a benchmark of North South trade integration (Europe’s preferential trade agreement). We find that • ECOWAS and SADC membership significantly increases bilateral trade flows (and by more than for example preferential trade agreements with the EU do), • SADC membership has a stronger impact compared to ECOWAS and • that the impact of multi-membership critically depends on the characteristics of the overlapping RTA. We find a positive impact if an additional membership complements the integration process of the original RTA: overlapping memberships had a significant positive effect on bilateral trade within the ECOWAS bloc but it is insignificant for SADC.
    Keywords: Sub Sahara Africa;regional economic integration;South-South trade;North-South trade;intra-regional trade;gravity model;international trade;multi-membership
    Date: 2011–03–18
  3. By: Philip Du Caju; François Rycx; Ilan Tojerow
    Abstract: In the last decades, international trade has increased between industrialised countries and between high- and low-wage countries. This important change has raised questions on how international trade affects the labour market. In this spirit, this paper aims to investigate the impact of international trade on wage dispersion in a small open economy. It is one of the few to: i) use detailed matched employer-employee data to compute industry wage premia and disaggregated industry level panel data to examine the impact of changes in international trade on changes in wage differentials, ii) simultaneously analyse both imports and exports, and iii) examine the impact of imports according to the country of origin. Looking at the export side, we find (on the basis of the system GMM estimator) a positive effect of exports on industry wage premia. The results also show that import penetration has a significant and negative impact on industry wage differentials whatever the country of origin. However, the country of origin appears to matter quite a lot. Indeed, the detrimental effect of imports on wages is found to be significantly bigger when the latter come from low-income countries than from high-income countries.
    Keywords: Wage Structure; Inter-industry Wage Differentials; International Trade; Matched Employer-employee Data
    JEL: F16 J31
    Date: 2011–03
  4. By: Xing, Yuqing (Asian Development Bank Institute)
    Abstract: This paper analyzes the role of processing trade in the People’s Republic of China (PRC)’s bilateral trade balances and the impact of the yuan’s appreciation on processing trade. The analysis is based on panel data covering the PRC’s 51 trading partners from 1993–2008. The empirical analysis shows that: (1) processing trade accounts for 100% of the PRC’s overall trade surplus and can explain most of its bilateral trade balances; (2) the PRC’s processing trade shows a significant regional bias—its processing exports to East Asian economies are three times those to other regions while its processing imports from East Asian economies are eleven times those from other regions; (3) the PRC is one of the major sources of its own processing imports, accounting for 16.8% of its total processing imports from all 51 trading partners; and (4) the appreciation of the yuan would affect both processing imports and exports in the same direction—specifically, a 10% real appreciation of the yuan would reduce not only the PRC’s processing exports by 9.6% but also its processing imports by 3.9%. Therefore, a moderate appreciation of the yuan would have a very limited impact on the PRC’s trade balance.
    Keywords: processing trade; east asia trade; bilateral trade balances; prc processing trade; yuan appreciation
    JEL: F10
    Date: 2011–03–23
  5. By: Lawless, Martina (Central Bank of Ireland)
    Abstract: Are the costs of exporting to a market reduced if a firm has experience of exporting to a neighbouring market? If so, does this effect operate through reducing en- try barriers or by increasing sales once the firm is operating in the market? This paper examines linkages between current export destinations and entry, sales and exit for new markets. We find that measures of exporting experience in geographically nearby markets increase the probability of entry into a market and reduce the probability of exit. However, these same measures have negative effects on the firm’s export sales in the market. This negative effect on sales is particularly strong for recently entered firms. We interpret this result in the context of the Melitz heterogeneous-firm model of trade by showing that lower fixed costs reduce the entry threshold, but this lower threshold has the effect of allowing lower-sales marginal firms to be present in the market.
    Keywords: Distance; Export performance; Heterogeneous firms
    JEL: F10
    Date: 2011–03
  6. By: Karpaty, Patrik (Örebro University); Gustavsson, Patrik (Stockholm School of Economics and Centre of Excellence for Science and Innovation Studies (CESIS))
    Abstract: In this paper, we analyze how the offshoring of services by Swedish firms is affected by corruption in target economies. Taking stance from the gravity model of trade, we analyze how the choice of country, volume and composition of offshored services is affected by the presence of corruption in target economies. The results suggest that corruption is a deterrent for service offshoring. Firms avoid corrupt countries, and corruption reduces the amount of offshored services. In addition, the sensitivity to corruption is highest for poor countries, and large and internationalized firms are the ones that tend to be the most sensitive to corruption. Given the importance of large firms as international investors and subcontractors, this adds yet another argument for fighting corruption.
    Keywords: Corruption; Services; Offshoring; Gravity model; Firm level data
    JEL: C23 D21 F23 L24
    Date: 2011–03–25
  7. By: Gabor Pula (European Central Bank, Kaiserstraße 29, D-60311 Frankfurt am Main, Germany.); Daniel Santabárbara (Banco de España and European Central Bank, Kaiserstraße 29, 60311 Frankfurt am Main, Germany.)
    Abstract: There is an ongoing debate in the literature about the quality content of Chinese exports and to what extent China imposes a threat to the market positions of advanced economies. While China’s export structure is very similar to that of the advanced world, its export unit values are well below the level of developed economies. Building on the assumption that unit values reflect quality the prevailing view of the literature is that China exports low quality varieties of the same products than its advanced competitors. This paper challenges this view by relaxing the assumption that unit values reflect quality. We derive the quality of Chinese exports to the European Union by estimating disaggregated demand functions from a discrete choice model. The paper has two major findings. First, China’s share on the European Union market is larger than would be justified by its relatively low average prices, implying that the quality of Chinese export products is relatively high compared to many competitors. Second, China has gained quality relative to other competitors since 1995, indicating that China is climbing up the quality ladder. The relatively high and improving quality of China’s exports may be explained by the increasing role of global production networks in China. JEL Classification: F1, F12, F14, F15, F23.
    Keywords: Chinese Exports, Vertical Product Differentiation, Quality Ladder, Global Production Networks, Discrete Choice Model, COMEXT database.
    Date: 2011–03
  8. By: Kei-Mu Yi; Jing Zhang
    Abstract: We develop a tractable, three-sector model to study structural change in a two-country world. The model features an endogenous pattern of trade dictated by comparative advantage. We derive an intuitive expression linking sectoral employment shares to sectoral expenditure shares and to sectoral net export shares of total GDP. Changes in productivity and in trade barriers affect expenditure and net export shares, and thus, employment shares, across sectors. We show how these driving forces can generate the "hump" pattern that characterizes the manufacturing employment share as a country develops, even when manufacturing is the sector with the highest productivity growth.
    Date: 2011
  9. By: Toshihiro Okubo (Research Institute for Economics and Business Administration, Kobe University); Pierre M. Picard (CREA, University of Luxembourg (Luxembourg) and CORE, Université catholique de Louvain (Belgium)); Jacques-François THISSE (CORE, Université catholique de Louvain (Belgium), Université du Luxembourg, CEPR, and RIEB, Kobe University)
    Abstract: We study how the level of trade costs and the intensity of competition can explain the existence of two-way, one-way or no trade within the same industry. As trade costs decrease from very high to very low values, the economy moves from autarky to a regime of two-way trade, through a regime of one-way trade from the larger to the smaller country. Trade is less likely when the economy gets more competitive. Finally once capital is mobile across countries, the market delivers an outcome in which capital is too much concentrated in the large country.
    Keywords: trade regime; country asymmetry; capital mobility
    JEL: F12 H22 H87 R12
    Date: 2011–03
  10. By: Matthew A. Cole (Department of Economics, University of Birmingham, UK); Robert J.R. Elliott (Department of Economics, University of Birmingham, UK); Toshihiro Okubo (Research Institute for Economics and Business Administration, Kobe University)
    Abstract: In recent years there has been a dramatic increase in the number of firms shifting stages of their production processes overseas. In this paper we investigate whether firms outsource the dirtier stages of production to minimise domestic environmental regulation costs – a process broadly consistent with the pollution haven hypothesis. We develop a theoretical model of environmental outsourcing that focuses on the roles played by firm size and productivity, transport costs and environmental regulations. We test the model's predictions using a firm-level data set for Japan and do find evidence of an 'environmental outsourcing' effect.
    Keywords: Environmental regulations, trade, outsourcing, outsourcing, firm-level.
    JEL: F18 L51 L60 Q56 R3
    Date: 2011–03
  11. By: João Amador
    Abstract: The article suggests a methodology to measure the intra-distribution dynamics of export specialization and applies it to a large set of countries in the last four decades. The article contributes to the literature on the dynamics of international trade specialization, making use of the information contained in the distribution of specialization indices, as initially suggested in Proudman and Redding (1997, 2000). In addition, the article makes use of conditional kernel densities and highest density regions to measure persistency/mobility in way that is applicable to other studies. Finally, the article empirically tests the determinants of specialization dynamics. The results reveal that there is considerable export specialization dynamics and heterogeneity across countries. In addition, it seems that the export specialization dynamics decelerated in most countries from 1967-1994 to 1980-2008 and there is a significant positive correlation between the indicators in the two periods. The econometric formulations reveal that higher human capital, improvement in infrastructures and macroeconomic stability seem to increase specialization dynamics.
    JEL: C14 F14 F15
    Date: 2011
  12. By: Ian Coxhead (Agricultural and Applied Economics, University of Wisconsin-Madison)
    Abstract: The increasing integration of Asian economies has fueled a period of sustained economic growth for the region as a whole relative to the rest of the world, and for individual Asian economies. This growth has been supported by three phenomena: global demand growth; elastic supplies of labor and other inputs, and substantially lower costs of international trade and business. The latter trend has accelerated a very specific form of economic integration, the vertical unbundling (or "fragmentation") of production tasks (Jones 2000). Fragmentation has reduced total production costs by permitting the cost-minimizing allocation of tasks among regions, regardless of national boundaries and even of distance. At a global scale, fragmentation trade is associated with the "offshoring" of labor-intensive tasks from high-wage to low-wage countries (Grossman and Rossi-Hansberg 2006). Within developing Asia, it has led to the division of tasks among countries with similar factor endowments, based on the establishment of specialized niche industries with lower costs. This effect has been central to the integration of Asia's economies: "parts and components" is the largest and the fastest-growing form of intraregional trade.
    Keywords: trade, Asian integration
    Date: 2010–07
  13. By: Van Dijk, Michiel
    Abstract: This report looks at the African regional trade, regional integration agreements (RIAs) and the implications for food security.An overview is presented on the present state of African regional integration and the determinants of regional trade in agriculture and food commodities. In particular the study focuses on eight target countries, related RIAs and a set of strategic food commodities. The evidence presented in this study shows that African countries have made progress in opening up agriculture and food trade with partner countries. With, the exception of Ghana, Tanzania and Mozambique, the effective applied tariff rates for regional trade partners are substantially lower than the (MFN) rates applied to world trade partners. Nonetheless, regional trade in agriculture and food only increased marginally between 1990 and 2009, and is relatively low in comparison with other developing regions. The weak state of soft and hard infrastructure, rather than high trade tariffs, seem to be the cause of this.
    Keywords: Regional integration agreements, Africa, Food security., Agricultural and Food Policy, Food Security and Poverty, International Development, International Relations/Trade,
    Date: 2011–03–08
  14. By: Pau Rabanal; Damiano Sandri; Isabelle Méjean
    Abstract: A reduction in the U.S. current account deficit vis-à-vis emerging Asia involves a shift in demand from U.S. to emerging Asia tradable goods and a change in international relative prices. This paper quantifies the required adjustment in the terms of trade and real exchange rates in a three-country open economy model of the U.S., China, and other emerging Asia. We compare scenarios where both Chinese and other emerging Asian export prices change by the same proportion to the case where export prices remain constant in one country and increase in the other. Our results are robust to different assumptions about elasticities of substitution and to introducing a high degree of vertical fragmentation in production in the model.
    Keywords: Asia , Bilateral trade , China, People's Republic of , Current account , Economic models , Emerging markets , Export prices , Exports , Price elasticity , Real effective exchange rates , Terms of trade , United States ,
    Date: 2011–03–04
  15. By: Márton Csillag; Miklós Koren
    Abstract: We estimate the effect of imported machines on the wages of machine operators utilizing Hungarian linked employer-employee data. We infer exposure to imported machines from detailed trade statistics of the firm and the occupation description of the worker. We find that workers exposed to imported machines earn about 8 percent higher wages than other machine operators at the same firm. When we proxy for unobserved worker characteristics, we find a significant 3 percent wage premium, suggesting that the relationship is causal. The return to schooling is also higher on imported machines. We build a simple matching model consistent with these findings. Our findings suggest that machine imports can be an important channel through which skill-biased technical change reaches less developed and emerging economies.
    Date: 2011–03–25
  16. By: Ishikawa, Jota; Kiyono, Kazuharu; Yomogida, Morihiro
    Abstract: We develop a two-country (North and South), two-good, general equilibrium model of international trade in goods and explore the effects of domestic and international emission trading under free trade in goods. Whereas domestic emission trading in North may result in carbon leakage by expanding South窶冱 production of the emission-intensive good, international emission trading may induce North to expand the production of the emission-intensive good by importing emission permits. Emission trading may deteriorate global environment. North窶冱 (South窶冱) emission trading may not benefit South (North). International emission trading improves global efficiency but may not benefit both countries.
    Keywords: global warming, emission quota, emission trading, carbon leakage, Kyoto Protocol
    JEL: F18
    Date: 2011–03
  17. By: Botta, Alberto
    Abstract: The World Bank (WB) Computational General Equilibrium model (CGE) by Claus Astrup and Sebastian Dessus (2001) is a cornerstone study on Palestine. It adopts a strictly neoclassical perspective, in which price-driven adjustments and the Armington/Constant-Elasticity-of-Transformation (CET) apparatus describe the functioning of the Palestinian economy and its foreign trade relations. This paper argues that certain empirical and factual inconsistencies prevent such a “pure” neoclassical approach from representing the Palestinian reality. We firstly argue that quantity-driven adjustments better describe economic adjustments within the Palestinian economy than price-driven adjustments do. Secondly, we stress the prevailing inter-industry nature of Palestinian foreign trade and the relevance of real income variables to explain expenditure allocation between domestic and imported goods. These aspects are hardly caught by the Armington/CET apparatus and require an alternative formalizing strategy. The final section of the paper describes a heterodox/structuralist perspective on Palestine.
    Keywords: Palestine; Foreign trade; Structuralist CGE models
    JEL: C68 F14 B50
    Date: 2010–10
  18. By: Donald MacLaren
    Abstract: In the negotiations on agriculture in the World Trade Organization, itwas asserted that an importing state trading enterprise affects the domestic market but not the international market. This claim is investigated through specifying a model of intermediaries in international trade. There are two kinds of intermediaries: first, a state trading enterprise; and second, an n-firm Cournot oligopsony/oligopoly that acts as the counterfactual. Using Japanese market priceand quantity data for rice, and elasticity parameters drawn from the literature,the equations of the model are calibrated to these data and parameters. The resulting equations then permit the calculation of the tariff equivalence of the state trading enterprise under different assumptions about market structure, as wellas the welfare effects associated with them. The equations are re-specified to model the existing import regime for rice, which is a tariff quota. The conclusions are: first, that, compared with the counterfactual, an importing state trading enterprise acts like a tariff by restricting imports; and second, the currentimport regime of a tariff quota causes a welfare loss compared with the counterfactual.
    Date: 2011–03
  19. By: Richard Fabling; Arthur Grimes; Lynda Sanderson (Reserve Bank of New Zealand)
    Abstract: This paper investigates the impact of port infrastructure on exporter behaviour, focusing on the opening of Metroport, a new inland port in Auckland. We model adoption of the new port facilities among local firms, and then relate uptake to future export growth performance. We find that the main determinants of uptake are product- and firm-related, rather than location-specific. Firms use the new port infrastructure in conjunction with the existing port in order to mitigate capacity constraints and/or access a greater range of transport options. We take early adoption of Metroport as a signal of an existing capacity constraint and analyse the effect of the new port on subsequent export growth, finding a positive but insignificant impact on export volumes.
    JEL: F10 H54
    Date: 2011–02
  20. By: Mishra, Saurabh; Lundstrom, Susanna; Anand, Rahul
    Abstract: Can increasing sophistication in service exports lead to economic growth? Although services were historically produced primarily for domestic consumption, they are gradually becoming more productive, tradable and unbundled. The authors construct an index of"service exports sophistication"to document this phenomenon. Panel data estimations indicate a positive association between growth in per capita income and higher sophistication of service exports. The results also suggest that this phenomenon is growing in importance over time. Considering the limits of traditional industrialization in igniting global growth, the results provide an alternative channel.
    Keywords: Economic Theory&Research,Public Sector Corruption&Anticorruption Measures,Commodities,Housing&Human Habitats,Banks&Banking Reform
    Date: 2011–03–01
  21. By: Frankel, Jeffrey A. (Harvard University)
    Abstract: Fiscal and monetary policy each has a role to play in mitigating the volatility that stems from the large trade shocks hitting commodity-exporting countries. All too often macroeconomic policy is procyclical, that is, destabilizing, rather than countercyclical. This paper suggests two institutional innovations designed to achieve greater countercyclicality, one for fiscal policy and one for monetary policy. The proposal for fiscal policy is to emulate Chile's structural budget rule, and particularly its avoidance of over-optimism in forecasting. The proposal for monetary policy is called Product Price Targeting (PPT), an alternative to CPI-targeting that is designed to be more robust with respect to terms of trade shocks.
    Date: 2011–02
  22. By: Richard Baldwin; Anthony J. Venables
    Abstract: Fragmentation of stages of the production process is determined by international cost differences and by the benefits of co-location of related stages. The interaction between these forces depends on the technological relationships between these stages. This paper looks at both cost minimising and equilibrium fragmentation under different technological configurations. Reductions in trade costs beyond a threshold can result in discontinuous changes in location, with relocation of a wide range of production stages. There can be overshooting (off-shoring that is reversed as costs fall further) and equilibrium may involve less off-shoring than is efficient.
    Keywords: Fragmentation, off-shoring, parts and components, assembly, vertical linkages
    JEL: F1 F23 R3
    Date: 2011
  23. By: Docquier, Frédéric (Université catholique de Louvain); Rapoport, Hillel (Bar-Ilan University)
    Abstract: This paper reviews four decades of economics research on the brain drain, with a focus on recent contributions and on development issues. We first assess the magnitude, intensity and determinants of the brain drain, showing that brain drain (or high-skill) migration is becoming the dominant pattern of international migration and a major aspect of globalization. We then use a stylized growth model to analyze the various channels through which a brain drain affects the sending countries and review the evidence on these channels. The recent empirical literature shows that high-skill emigration need not deplete a country’s human capital stock and can generate positive network externalities. Three case studies are also considered: the African medical brain drain, the recent exodus of European scientists to the United States, and the role of the Indian diaspora in the development of India’s IT sector. We conclude with a discussion of the implications of the analysis for education, immigration, and international taxation policies in a global context.
    Keywords: brain drain, international migration, globalization
    JEL: F22 O15 J61
    Date: 2011–03

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